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Assets and Liabilities Unit 9 June 20131Dr Vidya Kumar.

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Presentation on theme: "Assets and Liabilities Unit 9 June 20131Dr Vidya Kumar."— Presentation transcript:

1 Assets and Liabilities Unit 9 June 20131Dr Vidya Kumar

2 IAS 37 Provisions, contingent liabilities and contingent assets deals with the recognition, measurement and disclosure of liabilities or potential liabilities. June 20132Dr Vidya Kumar

3 Other financial reporting standards for liabilities IAS 39 – Financial instruments IAS 19 - Pension liabilities IAS 12 - Income tax liabilities June 20133Dr Vidya Kumar

4 Liabilities not dealt with in financial reporting standards liabilities arising from legal disputes; liabilities arising due to corporate restructuring environmental and decommissioning obligations liabilities arising under contracts that have become onerous June 20134Dr Vidya Kumar

5 IAS 37 treatment of provisions' contingent liabilities and contingent assets defines a provision as a liability of uncertain timing or amount This is a type of creative accounting that directors make in order to smooth profits June 20135Dr Vidya Kumar

6 The general principles of IAS 37 (a)an entity has a present obligation (legal or constructive) as a result of past events (b)a transfer of economic benefits may be required to settle the obligation (c) a reliable estimate can be made of the amount of the obligation June 20136Dr Vidya Kumar

7 IAS 37- General principles - provisions IAS 37 states that the amount recognized as a provision should be the best estimate of the expenditure to settle the present obligation at the period end date a class obligation a single obligation June 20137Dr Vidya Kumar

8 Operating losses and onerous contracts where a contract becomes onerous and cannot be avoided then a provision should be made June 20138Dr Vidya Kumar

9 Restructuring provisions A provision for restructuring should only be recognized when (a) a detailed formal plan for the restructuring is identified (b)has raised a valid expectation in those affected that it will carry out the restructuring June 20139Dr Vidya Kumar

10 Environmental Liabilities and decommissioning costs A provision for environmental liabilities Should be recognized at the time and to the extent that the entity becomes obliged legally or constructively to rectify environmental damage or to perform reconstructive work on the environment. A provision for decommissioning costs should be recognized to the extent that decommissioning costs relate to damage already done. June Dr Vidya Kumar

11 Disclosures - IAS 37 for provisions Increase in Provisions any change in value has to be shown for: new provisions increase to the existing provisions where provisions are carried at present value June Dr Vidya Kumar

12 Disclosures - IAS 37 for provisions Reductions in provisions if it is no longer probable that a transfer of economic benefits will be required to settle the obligation the provision should be reversed June Dr Vidya Kumar

13 Contingent liabilities Cannot be reliably estimated therefore it cannot be recognised in the accounts but may be disclosed by way of note to the accounts or not disclosed if an outflow of economic benefits is remote June Dr Vidya Kumar

14 Contingent Assets A contingent asset is a possible asset that arises from past events whose existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within the entity’s control. June Dr Vidya Kumar

15 ED IAS 37 Non Financial liabilities In June 2005 The International Accounting Standards Board (ISAB) proposed amendments to IAS 37 Provisions, Contingent liabilities and contingent assets. The new title is IAS 37 Non financial liabilities. June Dr Vidya Kumar

16 Q & A June Dr Vidya Kumar


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